Becoming a high-growth firm in a developing country: The role of co-funding

Long, Trinh Quang

doi:10.1016/j.frl.2018.08.018

Cited by 6 publications

(3 citation statements)

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“…Second, formal finance and informal finance are horizontal relationships. Two sectors balance the advantages and disadvantages to each other and co-fund the borrowers for the optimal profits (Andersen & Malchow-Møller, 2006;Degryse, Lu, & Ongena, 2016;Long, 2019;Madestam, 2014). We complement the studies by documenting that the lenders are more likely to co-fund the borrowers with formal financing records in the online peer-to-peer lending market.…”

Section: Introductionmentioning

confidence: 95%

“…Madestam (2014) also finds that the co-funding model can simultaneously balance both sectors' advantages and disadvantages, such as the informal financial sector's information advantages and the formal financial sector's cost and scalability advantages. A strand of literature documents that firms with co-funding usually perform better in the future (Degryse, Lu, & Ongena, 2016;Long, 2019). Moreover, firms with mixed relationship lending and transaction lending are more resilient to the crisis (Bolton, Freixas, Gambacorta, & Mistrulli, 2016).…”

Section: Co-fundingmentioning

confidence: 99%

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Strategic co-funding in informal finance market: evidence from China

Zhang

2021

Journal of Applied Economics

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Information asymmetry in the anonymous informal finance market drives the lenders to screen the borrowers by disclosed information. Using data from a powerful online peer-to-peer lending platform, we study the effects of formal financing records on successful funding and default outcomes in the informal finance market. We find that lenders are more likely to fund borrowers with formal financing records. Borrowers with formal credit are more likely to repay the loans entirely. Co-funding with the formal financial sector is strategic, corresponding to lower default risk. Moreover, without historical success records or with a low-income level, borrowers can use the formal credit signals to mitigate information asymmetry and improve the funding probability. These results are obtained after controlling for loan-level and borrower-level information, cityby-year-month, and day-of-week fixed effects. Several tests show our findings are unlikely to be an unintentional byproduct of the formal financial signals.

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Section: Introductionmentioning

confidence: 95%

Section: Co-fundingmentioning

confidence: 99%

Strategic co-funding in informal finance market: evidence from China

Zhang

2021

Journal of Applied Economics

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“…In this respect, Allen et al (2019), Burke et al (2010) and Burke et al (2014) propose that formal and informal financing can be complementary, particularly in the case of small early-stage business. In this same line, Long (2019) pointed out that companies that use formal and informal finance (as complement) have the highest chance of becoming high-growth firms and also perform much better than their counterparts. Other authors have stressed a complementary relationship, as friends and family can acquire funds in the formal system to support entrepreneurial financing gaps (Bose, 1998; Floro and Ray, 1997; Hoff and Stiglitz, 1998).…”

Section: Introductionmentioning

confidence: 96%

The effect of formal financial accessibility on love money investment

Pinto-Gutierrez

Romaní

Atienza

2023

EBR

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Purpose This paper aims to analyse whether the degree of formal financial access in a country affects love money investment, defined as capital provided to entrepreneurs from family and friends to finance their businesses, in early-stage entrepreneurial activities. Design/methodology/approach The authors use multilevel mixed-effect regression models and an extensive database of over 700 thousand individuals from 53 countries between 2007 and 2017 taken from the Global Entrepreneurship Monitor adult population survey. Findings This paper finds that a country’s level of accessibility to bank debt and venture capital is positively associated with the likelihood of an individual becoming a love money investor. It also finds that the amount of capital invested by love money investors is positively correlated to the level of access to bank debt and venture capital. The results of this paper confirm the hypothesis of complementarity between the financial system and friends and family financing in the capital market for early-stage entrepreneurs. Originality/value This paper contributes to the entrepreneurial finance literature, particularly to a better understanding of the love money investors, an important source of funding and segment of the informal investment that is sparsely studied.

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Startups’ demand for non-financial resources: Descriptive evidence from an international corporate venture capitalist

Riepe

Uhl

2020

Finance Research Letters

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Becoming a high-growth firm in a developing country: The role of co-funding

Cited by 6 publications

References 16 publications

Strategic co-funding in informal finance market: evidence from China

Strategic co-funding in informal finance market: evidence from China

The effect of formal financial accessibility on love money investment

Startups’ demand for non-financial resources: Descriptive evidence from an international corporate venture capitalist

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